Wednesday, 9 July 2008

Fair Value and Insurers

CFO.com has an excellent post on Fair Value accounting. One quote in particular amused me:
James Tisch, who was effectively the sole voice of dissent on the first panel, complained bitterly that fair value accounting required reams of nearly incomprehensible disclosure information and often forced his company to make poor economic choices.

Tisch ... said that if insurance companies had to run mark-to-market accounting through their income statements, "[they] would essentially be out of business"
And that, as we have seen with the financial guarantee insurers, is clearly right. But perhaps if the insurers were forced to use fair value, they might deploy less leverage and pay a little more attention to what the market is telling them.

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2 Comments:

Blogger peterxyz said...

Tisch's comments appear to be directed at the asset side of the balance sheet rather than the liability side, which I presume is what you are thinking of with the guarantee business

11:39 pm  
Blogger David Murphy said...

True, but it is all risk: an insurer's health is all about the balance between assets and liabilities, and so one of the measures I want to know before I buy the stock is PV(assets) - PV(liabilities). There are others, it is true, and certainly FV needs to be enriched by additional disclosures (EL for instance, for a long term asset portfolio) but FV on both sides of the balance sheet is useful information.

8:22 am  

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